OCRI's Jeff Dale

JDS Uniphase's plan to consolidate management in San Jose was received well by the market on Thursday, while Ottawa's tech sector was left to consider its future.

Early Thursday morning, JDS surprised the market by announcing that founder and chief executive Josef Straus, known for his full beard, beret and Czechoslovakian accent, will retire Sept. 1.

Cyrus Madavi, the company's COO and president considered the heir apparent to the 57-year-old Straus, will also depart after a "transition period."

Taking over will be Kevin Kennedy, a member of JDS' board and former chief operating officer of U.S. software company Openwave Systems Inc.

Brokerage house Credit Suisse First Boston dubbed the decision to consolidate management in one location as "an incremental positive," in a morning research note.

"We also believe that Kevin brings a good skill set for rebuilding employee morale after a long difficult restructuring," the note read.

Investors appeared to agree. JDS ended the day up almost 10 per cent on the Toronto Stock Exchange.

"However, we continue to believe that the market rather than management skill will ultimately determine JDSU's fortunes," CSFB added, saying JDS still faces a "formidable challenge" from a long recovery cycle, Asian competitors and a lack of pricing power.

What's good for JDS isn't necessarily good for Ottawa, as the nation's capital weathers what is shaping up to be a rough August for the local tech sector.

"I say it's sad (that Straus is stepping down)," said Jeff Dale, president of OCRI. "He's been such a champion for the company and for Ottawa as well."

'EMOTIONAL ISSUE'

However, Dale added that Straus' departure is an "emotional issue." What the management shuffle means in terms of JDS's operational changes is old news. The company has been carrying out its global realignment program for the better part of two years and the reduction of Ottawa has been well publicized.

Dale shrugged off critics who suggest Ottawa is becoming little more than a branch plant city. He points to the success of the semiconductor sector, which boasts firms such as Zarlink, Mosaid and Tundra. On the software front there is Cognos, Canada's largest software firm and arguably most successful tech company.

Instead, what many have called Ottawa's greatest liability Dale considers to

be the region's strength – its reputation as a research and development centre.

While JDS and other telecom equipment makers were slashing jobs and moving manufacturing to China, it was R&D that softened the blow to the local tech sector, Dale said. Pound for pound, he believes Ottawa has "weathered the storm" better than other tech centres such as San Jose, Austin, Tex. and Raleigh, N.C.

He said venture capitalists continue to see value and opportunity in the region. The reality is, growth never occurs in a straight line. "We're always going to have successes and failures," Dale said.

The loss of JDS's local HQ isn't the only negative news to strike this month. Ceyba, once considered to be the region's most promising startup, folded despite having product in customer's hands. On Wednesday evening, more than 80 per cent of Corel Corp.'s shareholders approved that company's takeover by San Franciso's Vector Capital, a deal that will see Corel taken private. Privately held Interactive Circuits & Systems, a 23-year-old defence contractor, was acquired by the U.K.'s Radstone Technology. On Thursday, Maryland's Ciena Corp. acquired local startup Akara Canada Inc. for US$45 million.

Dale acknowledged that Ceyba's failure is disappointing, but the news from Corel and ICS isn't as bad as it appears. The buyers have both affirmed their commitment to Ottawa, the local staff and the products of the two companies.

Dale has confidence in the future of Ottawa's tech sector and emphasized that the key focus must be to "build more companies that are successful and promote them."

'WHEEL IS TURNING'

Paul LaBarge, a senior partner at business and technology law firm LaBarge Weinstein, agreed with Dale that the region's tech sector will endure.

"It's never great news when you become a branch plant economy," LaBarge said. "But at the same time you've got more companies coming along. The wheel is turning."

The pain of the region's telecom equipment makers has spurred a new wave of entrepreneurs who have learned the lessons of the tech wreck. There are startups aplenty with good business strategies and products, LaBarge said, adding that the business mix has shifted to other sectors such as biotech.

"If you think back far enough, the tech sector has a business cycle like any other part of the economy," he said. "The changes just happen a lot faster."

When it comes to local companies being acquired by foreign firms, LaBarge said the key consideration is the buyer's commitment to the community.

"Is it is doom and gloom? I don't think so," LaBarge said of the recent rash of news. Ottawa will survive and move on.

Denzil Doyle, chairman of Capital Alliance Ventures, shares the view that the future of Ottawa's tech sector lies with the next wave of startups.

"I think there is a tech recovery underway," Doyle said. "New company formation is at an all-time high."

However, he added that industry consolidation is also brisk.

"I think the real tragedy for Canada is that there are not receptors here for these companies," he said.

In other words, there are too few domestic companies with sufficient size and clout to compete with foreign buyers and consolidate their sectors.

No matter how well intentioned and committed to a "branch plant" operation a foreign company may appear, eventually functions such as sales, marketing, and key decision making end up south of the border, Doyle said. All that's left is R&D.

"These are whole areas of business expertise that Canadians should be involved," Doyle said.